A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Option
An option is a financial contract or a
contingent claim where we have a choice(option) not to exercise if it is not advantageous for us. This optionality is usually built into the pay-off structure. An option is a special case of the more general concept
derivative.
Examples of commonly used contracts
- European call Φ(S(T))=max(S(T)-K,0)
- European put Φ(S(T))=max(K-S(T),0)
- American call Φ=max(S(t)-K,0) where we can choose t to be any time
between zero and T.
- American put Φ=max(K-S(t),0) where we can choose t to be any time
between zero and T.
- Asian call Φ=max(∑^{n}_{i=1}S(t_{i})/n-K,0), for 0≤t_{1}<t_{2}...<t_{n}≤T
- Asian put Φ=max(K-∑^{n}_{i=1}S(t_{i})/n,0) for 0≤t_{1}<t_{2}...<t_{n}≤T